IP: Finding the factors in enforcement and monetization of patent assets

When considering enforcing patent rights through litigation, it is important to remember that a patent grants a negative right to its owner. In other words, a patent prevents others from making use of the protected innovation. In order to optimize the results and enhance the outcomes of any enforcement actions, companies must have realistic and practical expectations. Almost all patent litigation settles before the outcome of a trial. This is ultimately a proper result since all patent disputes at their heart are business disputes. They are about money and achieving an enhanced competitive position in the marketplace. As such, personal animus should have no place in the dispute.

The difficulty in taking an unreasonably hard stance in patent litigation is that such a position may very well result in two potentially unpleasant outcomes for the patent owner. First, if the defendant perceives the litigation as a “fight to the death” over their infringing product, they will have no incentive to settle and seek to continue the fight beyond any trial and through the appeals process which can drag the proceedings on for many more years and increase the costs significantly. This is especially true if the infringing product is critical to the defendant’s business survival.

The second and potentially more troubling problem with a hardline stance is that it gives the defendant and other potential infringing parties an extremely strong incentive to design around the patent owner’s patent. While a large patent portfolio belonging to a plaintiff may make this problematic, there are very few inventive concepts that don’t have some viable alternative available if someone is given the incentive to develop it. Consequently, an immovable patent owner may very well end up in the paradoxical situation of actually devaluing the company’s patents by enforcing them without willingness to compromise.

Another factor in adopting a reasonable patent strategy involves the creation of an image of a “battle-proven” patent. This is generally viewed as a patent that has been successively enforced through litigation resulting in the settlement in the form of some type of licensing agreement. Almost all litigation settlements and subsequent license agreements are sealed under agreements by the parties so that no outsiders can view the contents. Such a settlement, even on less than optimum terms to the patent owner, can create the perception of a battle-hardened patent to other subsequent infringers. The result is that later infringers will be much less likely to fight and more inclined to settle if they see that another party has been subject to litigation over the same patent and has ended up settling, even if the terms are unknown.

This strategy can often be enhanced by the patent owner’s careful selection of the first target of any sort of enforcement action. For example, a patent infringement lawsuit against an infringer with the financial resources and incentive to conduct a long-term fight may not settle very quickly and result in a long and expensive proceeding. A preferable alternative would be to pick a weaker first target that is much more likely to settle than get involved in a costly protracted fight. This will go far in developing the so-called battle-proven patent image while also confirming the patent owner’s willingness to settle.

When approaching potential settlement terms, an optimum strategy is to achieve a royalty arrangement through a license that would add to the competitor’s cost but not necessarily in a way that would prohibit them from playing a part in the marketplace. In such an instance, the patent owner would receive a competitive advantage on cost while still generating significant revenue from the competitor’s activities. As mentioned before, it is also very important that the patent owner not make the licensing burden so onerous as to give the infringer the incentive to develop an alternative product that does not infringe the patent.

While this article described the optimum strategy to maximize the value of patents when it comes to enforcement, it is rarely this neat in real life situations. Other factors come in to play, such as market conditions, industry attitudes towards patents, and almost certainly, financial resources available to both parties. However, when approaching enforcement, a patent owner should always remember the creed that it is not personal but strictly business and reflect this attitude in IP protection strategies.